- Russia’s default on sovereign debt does not have significant implications for the country or the global economy; the event may spook some investors in non-aligned markets.
- For the rest of the year, G7 partners will attempt find workable solutions to the conundrum of keeping oil and gas flowing out of Russia while reducing revenue inflows.
- The likelihood of imposing secondary sanctions against Chinese firms selling into Russia is now higher but China is taking a careful approach in order to avoid these.
Russia had a (predictable) failure to meet small dollar-denominated interest payments. The Ministry of Finance had avoided defaulting in April but, this time, the expiration of the US Treasury exemption for the servicing of foreign debt simply meant that Western institutions could not process payments to bondholders.
Moscow is refusing to acknowledge the default, claiming that it has at least attempted to make the payments. In fact, Russia transferred the money to a clearing house in Belgium, where the assets got frozen because the clearing house cannot settle any securities subject to sanctions. What will happen to these funds is unclear. Ultimately, bondholders are likely to recuperate some of the original principal, possibly in a different currency.